Profit

Profit is the payment for enterprise – the risks that are taken

Normal profit

This is the amount of profit needed to keep all factors of production in their current use in the long run

Normal profit is a minimum level that is needed for an entrepreneur to stay in that business

Supernormal / abnormal profit

These are profits that exceed the normal amount

Profits are maximised where there is the largest difference between MR and MC

Profits have a number of roles in an economy:

Supernormal or rising profits attract new entrants to markets

Retained profits provide finance for future investments

Allocation of factors of production - scarce factors tend to be more expensive and will therefore be used where they are likely to be the most profitable